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Energy soars but is an end in sight? Best and worst performing stocks in the first half

Nicola Chand  |  13 Jul 2022Text size  Decrease  Increase  |  
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Energy companies topped the share market in the first half buoyed by a global energy crisis and soaring commodity prices that are beginning to show signs of cooling.

The energy and utilities sectors were the only sectors to record positive total returns over the last six months amid a global downturn in equity markets, led by monster 50% plus gains at Whitehaven Coal, New Hope Corp and Woodside Petroleum.

However, the energy sector has cooled sharply since June with commodity prices going into reverse amid growing concerns rising rates will tip the global economy into recession and slash demand for metals and energy.

“Commodity demand tends to move around, but is highly dependent on economic growth,” said Morningstar mining analyst Jon Mills in an interview last week. "If we're going into a recession, all things being equal, commodity prices should fall, hence energy company share prices should decline too.”

Best performing companies

Coal miners and Australia’s biggest oil and gas company dominated the best performing stocks under Morningstar coverage in the first half, with four of the top five performers hailing from the energy sector.

Whitehaven Coal and New Hope Corporation snagged the top two spots, delivering total returns of 89% and 69% respectively. Morningstar’s energy sector index grew 29% over the same period.

Both coal mining companies have outperformed the broader market amid a global energy crisis spurred by Russia’s invasion of Ukraine.

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Supply out of the world’s sixth largest coal producer has been disrupted by sanctions and conflict. Coal prices shot up from the 2021 average price of USD $137 per metric ton, closing at $427.20 on Tuesday. In addition to limited Russian supply, China’s zero-covid policy has hindered coal production.

Woodside Energy group, Beach Energy and AGL Energy also topped the league tables, up 52%, 38% and 37% respectively.

Rising wholesale electricity prices are helping AGL stage a share price recovery after ending 2021 down 49%.

Worst performers

Financials, technology and healthcare vied for the wooden spoon in the half year. Troubled buy-now pay-later company Zip Co was the worst performer after tumbling 90%. Fellow BNPL Humm Group also suffered a big loss, down 53% since January.

High growth companies in the technology and healthcare sectors are falling as interest rate jitters sound alarm bells for those invested in highly valued and, in some cases, unprofitable companies.

Morningstar’s technology sector index is down 36% since the beginning of the year with unprofitable Tyro Payments falling 79%.

Australian healthcare company Nanosonics and biomedical firm AVITA Medical declined 47% and 59%, respectively over the same period. The Morningstar healthcare index is down 11%.

The run of torrid performance follows a record breaking fiscal 2021, when the Morningstar technology sector index gained 46% and the Morningstar healthcare index lifted 6%.

Growth stocks are struggling as central bankers raise rates to combat inflation and futures markets price in a cash rate of 3% by December. Higher rates reduce the value of future cash flows, particularly impacting companies whose profits lie years ahead.

Materials end fiscal year down

Mining companies occupied the top and the bottom of the league table in a sign of the volatility under in commodity markets.

Copper miner Oz Minerals, aluminium smelter Alumina Ltd, and gold miner Newcrest Mining are down 36%, 19% and 14% respectively in the six months to 30 June. The majority of losses occurred in the last quarter of the financial year as commodity prices began to turn.

With commodity prices linked tightly to economic activity, investors are concerned that the growing risk of a global recession combined with renewed lockdowns in China could sap demand for metals.

While coal prices continue to hover at record highs, prices for copper, aluminium, and gold have tumbled between 5% and 31% this year.

Top performers in the sector, Orica, BHP and Amcor returned 16%, 16% and 11% respectively.

 

is a wealth and finance journalist with Morningstar

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